Should I open a self-directed RRSP?

Gena Katz, a chartered accountant and principal with Ernst and Young, has the answer.

Gena Katz 18 February, 2005 | 2:00PM
Dear Expert,

I am a young professional in my early 20s, and I would like to start investing in RRSPs but I have very little experience with investing. Would you recommend I open a self-managed RRSP account with an institution like one of the big banks or seek the services of a professional portfolio manager? My initial portfolio will be very small, but I will invest via bi-weekly withdrawals from my pay. Any info is greatly appreciated!

Expert Answer:

I think you might be confused about what a self-managed or self-directed RRSP is. There are two basic types of RRSP accounts, directed and self-directed. The directed account is one that is held directly by the financial institution or mutual fund company with which you made the investment. The type of investment in each account is restricted to the options offered by the holder. And if you a looking for a number of different investments from different issuers, you will have many RRSP accounts. A self-directed RRSP allows you to hold a wide range of investments in one account. There is one trustee that administers the RRSP account but the investments can generally come from a variety of financial institutions, funds and companies. Investments can range from GICs and T-bills to corporate bonds and stocks, including certain small business shares. Where you speak of using a professional portfolio manager, you're likely talking about a self-directed plan.

You don't need a great deal of investment experience to use a self-directed RRSP. Although it is true that you have the flexibility to choose each and every investment in your account, you don't have to. You can get the assistance of consultants associated with the financial institution, or select mutual funds that are comprised of professionally managed portfolios.

What you have to watch out for with self-directed accounts are the annual administrative fees (these will vary between administrators) and the minimum deposit amounts.

You should investigate the features of various plans and choose one that best suits your needs and your current situation. And remember, even if you start out with a directed plan, you can always transfer funds at a later date to a self-directed plan.

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No statement in this article should be construed as a recommendation to buy or sell securities or to provide investment advice or individual financial planning. Morningstar Canada does not provide specific portfolio advice and recommends the use of a qualified financial planner when appropriate.

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Gena Katz

Gena Katz